Merrill Lynch files biggest loss in 93 years

The investment bank Merrill Lynch has slumped to the biggest loss in its 93-year history as its finances were pummelled by $7.9bn (£3.9bn) of liabilities from the summer's credit crunch, prompting an apology from its chief executive.

In another sign of investment banking volatility, the Wall Street Journal reported last night that Bank of America, the US's second largest bank, is laying off 3,000 staff from its corporate and investment banking unit, which reported a 93% drop in earnings. The bank said it was rebuilding rather than retreating from the sector.

Merrill revealed yesterday that, excluding one-off items, it lost $2.3bn over the three months to September, compared to a profit of $3.1bn a year ago. Its $7.9bn exposure to mortgage-related securities was far greater than the $4.5bn forecast in a profit warning three weeks ago.

As Merrill's shares dived by more than 6%, chief executive Stan O'Neal faced cross-examination by analysts about why his firm had lost far more than its rivals during debt market volatility which was sparked around the world by defaults on American sub-prime mortgages.

"No one, no one is more disappointed than I am in that result," Mr O'Neal said on a conference call. "I'm not going to talk around the fact that mistakes were made. I am accountable for those mistakes, just as I am accountable for the firm's performance as a whole."

Since Merrill's profit warning early this month, Mr O'Neal said an independent evaluation concluded that Merrill's liability was greater than it initially disclosed.

The credit agency Standard & Poor's downgraded Merrill's rating, describing the figures as "startling". It was the firm's first quarterly loss since 2001 and Merrill was alone among big Wall Street investment banks in going into the red over the crisis.

Heads have rolled, including the bank's chief of fixed-income trading, Osman Semerci, fired this month. Critics suggested that Mr O'Neal and his senior colleagues could be under threat.

As it reviews its operations, Merrill indicated that it may sell non-core businesses. The bank employs 64,200 people globally, including about 5,000 in London.

David Trone, a banking analyst at Fox-Pitt Kelton in New York, said: "There's a huge credibility problem here. People were misled - there was bad guidance." He noted, that Merrill's asset management division had mitigated the bank's problems by turning in a 70% increase in divisional profits to $953m.

By the close in New York, shares in Merrill Lynch were down 5.8% to $63.22.